COST ACCOUNTING
RESPONSIBILITY ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Calculate the residual income of the company if the following data given as follows:i) Minimum required rate of return:25%ii) Net Income for the year:RM8, 500, 000iii) Average operating assets:RM10, 000, 000
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RM6, 500, 000
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RM6, 000, 000
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RM7, 000, 000
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RM2, 500, 000
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Explanation:
Detailed explanation-1: -Corporate Finance The calculation of residual income is as follows: Residual income = operating income-(minimum required return x operating assets).
Detailed explanation-2: -RI = Controllable Margin – Average of Operating Assets * Required Rate of Return. Where: Controllable margin, which is also known as segment margin, refers to the project’s revenue less expenses. Required rate of return is the minimum amount of return that a company is willing to accept from a given investment.
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